The Centre for the Promotion of Private Enterprise has urged the Federal Government to adopt a clear and credible roadmap for cost-reflective electricity tariffs to clear the N4tn power sector debt.
It recommended stronger governance and accountability in subsidy management and debt verification, stricter performance benchmarks for Discos, reforms to transmission management through alternative concession models, and greater support for decentralised and renewable power solutions.
In a policy brief titled ‘Nigeria’s Power Sector Reform: Managing Complexity, Liquidity, and Political Economy Constraints,’ the CPPE warned that the absence of cost-reflective pricing has entrenched subsidy dependence, deepened the sector’s liquidity crisis, and pushed total industry debt to about N4tn.
The Director of the CPPE, Dr Muda Yusuf, said the current financing model of the power sector was fiscally unsustainable, stressing that repeated government interventions without deep structural reforms would only defer the crisis.
Yusuf said, “The inability to implement a fully cost-reflective tariff regime, largely due to social and political sensitivities, has widened the sector’s financing gap and made government intervention unavoidable in the short term. However, the current trajectory, characterised by rising sector debt of about N4tn, is not sustainable.”
The CPPE director urged the government to adjust its intervention and “adopt a clear roadmap to cost-reflective tariffs, implement a phased and predictable transition toward cost-reflective pricing, with targeted social protection for vulnerable consumers and strengthen governance and accountability.”
The CPPE noted that electricity tariffs remain capped despite rising input costs following recent macroeconomic reforms, including foreign exchange unification and fuel subsidy removal.
The policy group added that these macroeconomic reforms have intensified resistance to tariff adjustments while weakening the sector’s capacity to attract investment and sustain operations.
The CPPE described power sector reform as one of the most politically sensitive components of Nigeria’s economic reform programme, given the impact of tariff increases on households and businesses already grappling with high living costs.
Beyond tariffs, the CPPE identified deep structural weaknesses linked to the post-privatisation era, including concerns over the technical and financial capacity of some private investors, transparency gaps during privatisation, and weak governance among distribution companies and the Transmission Company of Nigeria.
It added that the continued public ownership and management of the TCN had contributed to operational inefficiencies, underinvestment, and slow network expansion, making transmission a major bottleneck in the value chain.
Yusuf further urged the government to “improve transparency in subsidy management, debt verification, and financial settlements, address distribution sector weaknesses, enforce performance benchmarks for Discos, including recapitalisation, technical upgrades, and loss reduction and reform transmission management.”
According to the CPPE, the sector’s liquidity crisis cuts across generation, transmission, and distribution, with Gencos struggling to pay gas suppliers, Discos unable to meet obligations due to poor revenue collection, and transmission infrastructure suffering from chronic underinvestment.
The organisation acknowledged that recent government interventions, including bond issuances to settle outstanding obligations to gas suppliers and Gencos, were necessary to prevent a collapse of electricity supply. However, it warned that such support must be time-bound and tied to clear reform milestones.
While conceding that a rapid move to full subsidy removal may be politically unrealistic, the CPPE advocated a phased and predictable transition to cost-reflective tariffs, supported by targeted social protection for vulnerable consumers.
It also pointed to emerging positive developments in the sector, including the introduction of differentiated tariff bands such as Band A, increased decentralisation with states assuming greater roles, expansion of independent power projects and growing adoption of renewable energy solutions.
The CPPE further recommended that the Federal Government explore alternative management or concession models for the Transmission Company of Nigeria to improve efficiency and investment.
Yusuf added: “Support decentralisation and renewables, encourage state-level initiatives, independent power projects, and renewable energy adoption to reduce pressure on the national grid and limit fiscal exposure. Government financial support should be clearly time-bound and linked to measurable reform milestones.”
Yusuf explained that power sector reform is a long-term and incremental process, “but without decisive action to address structural inefficiencies, improve governance and ensure fiscal discipline, the current trajectory will remain unsustainable.”
